Airline Stocks: 2 to Book, 2 to Bump

Some airline stocks will keep soaring, but others will run out of fuel

The airline industry is an infamously difficult place to make money. As Warren Buffett once observed: “If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

But despite the sector’s slim margins, vulnerability to fuel price swings and soaring aircraft and labor costs, airline investors did very well for themselves last year as airline stocks delivered gains of 50% to more than 100%.

However, investors should emphasize two of those words above all others: “last year.” Airline stocks will not post anything near 2013’s eye-popping returns this year.

That said, airline stocks learned a lot battling through the Great Recession — lessons that included fuel efficiency and hedging, rigorous capacity planning, higher ticket prices and an aggressive focus on new revenue streams like baggage and other ancillary fees.

But despite last year’s run-up in share prices, some airline stocks still boast attractive multiples and their overall business strategies look particularly promising this year, while some perennial performers look likely to hit a patch of turbulence in 2014. Here are two airline stocks that have further to fly and two that should buckle up for a bumpy ride: